Food bill's impact to be felt in upcoming fiscal years: HSBC

SummaryThe Food Security Bill was passed by the Lok Sabha earlier this week.

The proposed food security law will increase the government's subsidy bill but its impact is expected to be felt only in the upcoming fiscal years, says an HSBC report.

"The Food Security bill which has been recently approved in Parliament will also increase the subsidy burden. However, its impact may be felt only in upcoming fiscal years," HSBC said in a research note today.

The Food Security Bill was passed by the Lok Sabha earlier this week. The Bill seeks to provide cheap foodgrains to 82 crore people in the country, ushering in the biggest programme in the world to fight hunger.

The annual financial burden after its implementation is estimated to be about Rs 1.30 lakh crore at current cost.

The total food subsidy budgeted in the current fiscal is Rs 90,000 crore, of which Rs 10,000 crore is towards the implementation of the programme.

The Food Bill seeks to provide highly subsidised food grains to 75 per cent of the rural and 50 per cent of the urban population through the public distribution system (PDS).

It will guarantee 5 kg of rice, wheat and coarse cereals per month per person at a fixed price of Rs 3, Rs 2 and Rs 1 respectively.

The HSBC report further noted that falling rupee and rising crude price have also increased the risks of a fiscal slippage.

The Indian rupee has depreciated about 25 per cent this year and touched a record low of 68.80 to a dollar yesterday.

"It may be difficult to achieve the fiscal deficit target of 4.8 per cent in the current fiscal year, additionally, a steep increase in crude prices and sharp weakening of the Indian rupee against the USD since May has increased the cost of crude for domestic importers by 48 per cent," HSBC said.

It will be difficult for the government to pass through any large increase in fuel prices to consumers considering the upcoming general elections in May 2014, it added.

"This will be balanced by larger fuel subsidies, leading to higher fiscal deficit," the report said.